Delta Hedging at different vol levels

Okay so I put on a 1 contract SPX long straddle (trading small because I want to work on my delta hedging) on Wednesday with the contracts IV at 9.2% for a price of 26.80 and I have closed it out today for a relatively super small gain, almost a scratch. SPX has moved down 40$ From when I put the trade on. The straddle is now worth over 40, however I started hedging every 25 deltas, and found myself 75 deltas long the underlying and a portfolio delta of only 25! My underlying hedge took almost all my gains away!!! Like WTF I understand hedging will reduce my PNL variance at a cost. Thats what a hedge is! But to take away all my gains. Can anyone comment on what I did wrong here THANKS.

PS. maybe it just makes sense to buy the straddle and sell it when it hits a certain #. However that would mean to sell a straddle and buy back at a certian number which is a path for disaster.
 
The reason I closed out trade was i was -20 deltas and IF I bought 200 SPY I would have only 5 deltas to look forward to to the downside. My vega was depleted and even tho IV is now at 12, I have no vega $ to lookforward to. UGHHHH
 
Which straddle did you buy? 2700 Apr? Can you post all trades plz?

My guess... theta is a bitch.

That's what hedging does... we drop 1.5% over 3 days (2700 to 2660) with IV of 9.2% giving roughly 0.5% daily movement.

So I guess it more or less lined up.
 
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APRIL 18 spot 2709
APRIL 18. BOT 1 SPX 2710 APRIL 23rd straddle for 26.80
APRIL 19 10 am BOT 250 SPY @ 269.19 (hedge short deltas)
APRIL 19 11:15 am BOT 250 SPY @ 268.74
APRIL 19 1:28 pm BOT 250 SPY @ 267.86

Going into Friday I only had 25 deltas left on the downside.

APRIL 20 SPOT moves down and I am short 20 deltas. If I cover my deltas I have 0 deltas to the downside.

I decide to close the position

APRIL 20 11:23

SELL 750 SPY FOR 266.73
SELL 2710 STRADDLE 41.80

average cost of shares 268.59.
Profit (loss) on shares = (1395.00)

Profit (loss) on straddle = 1500.

Net profit (loss) on trade ~ $105 - commission ( ~ $8)

Realized vol over the three days was 11.2 but the SPX just moved in one direction so it killed me.
 
JackRab said:
Which straddle did you buy? 2700 Apr? Can you post all trades plz?

My guess... theta is a bitch.

That's what hedging does... we drop 1.5% over 3 days (2700 to 2660) with IV of 9.2% giving roughly 0.5% daily movement.

So I guess it more or less lined up.
More...

when I bot the contract it was 5 days to expiration. vol per day = 9.2*sqrt(5/365) = 1.07. <- that would be my daily expected vol right? 1.07%
How did you get .5%?
 
SillyWilly said:
when I bot the contract it was 5 days to expiration. vol per day = 9.2*sqrt(5/365) = 1.07. <- that would be my daily expected vol right? 1.07%
How did you get .5%?
More...

No..

9.2*sqrt(1/365) = daily expected move of 0.48%

Yours would be expected move over 5 days... which more or less the same move as you expect from the straddle value of 26.80/2710=0.99%... that makes sense... since you need that to cover total theta over 5 days when you buy&hold the straddle.

Also, you can't just say 1 day exp move = 0.5%, so the 5 day move is expected to be 2.5%... since moves are up and down and usually you hedge to flat position EOD.

Also, with 4.6 days to go (Monday morning - Friday afternoon) 26.80 in the 2710 straddle is more like an IV of 11...
 
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JackRab said:
No..

9.2*sqrt(1/365) = daily expected move of 0.48%
More...
Whoops silly me. If you look at the line I took, do you see a major flaw here or is that the standard path? I closed the trade because one of my option legs were almost at 1 delta. I believe it was the right decision to close it off because my gamma was approaching near 0. Thoughts?
 
SillyWilly said:
A

Realized vol over the three days was 11.2 but the SPX just moved in one direction so it killed me.
More...

Well there you go...

26.80 on the 2710 straddle with 4.6 DTM = about 11%... so I guess implied = realized...
 
JackRab said:
No..

9.2*sqrt(1/365) = daily expected move of 0.48%

Yours would be expected move over 5 days... which more or less the same move as you expect from the straddle value of 26.80/2710=0.99%... that makes sense... since you need that to cover total theta over 5 days when you buy&hold the straddle.

Also, you can't just say 1 day exp move = 0.5%, so the 5 day move is expected to be 2.5%... since moves are up and down and usually you hedge to flat position EOD.

Also, with 4.6 days to go (Monday morning - Friday afternoon) 26.80 in the 2710 straddle is more like an IV of 11...
More...
IB was quoting me 8.9 on the call and 9.4 on the put. Sorry for some reason didn't see the rest of your post. Thank you for posting. I appreciate the time taken.
 
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